Bailey Corporation owns a number of automotive parts shops. Bill Smith owns an automotive parts shop that has been in existence for 40 years and has competed with one of Bailey€™s branches. Bill is considering retiring and would like to sell his business. He has his CPA prepare the following balance sheet, which he presents to John Bailey, president of Bailey Corporation and a long-time friend of Bill€™s.

If Bailey Corporation pursues the acquisition, it will operate the automotive parts shop under its own tradename in the location Bill has used for 40 years. Mr. Bailey has asked you to prepare a summary of the tax consequences of the following three transactions: (1) a cash purchase of the noncash assets, (2) a purchase of the stock of Bill€™s corporation with cash and Bailey notes, and (3) an asset-for-stock reorganization conducted exclusively with Bailey stock. Upon interviewing Bill, you obtain the following additional information: Bill€™s business is operated as a C corporation. Bill has a $160,000 adjusted basis in his stock. Accounts payable of $200,000 are outstanding. The corporation has depreciated the building under the straight-line method and to date has claimed $100,000 in depreciation. The equipment is Sec. 1245 property for which the corporation has claimed $150,000 in depreciation. The after-tax profits in each of the last three years have exceeded $300,000. Bill suspects that some goodwill value exists that is not shown on the balance sheet. No NOL carryovers are available from prior years.
Required: 
Prepare a memorandum that outlines the tax consequences of each of the three alternative acquisitions. Assume that the anticipated cash purchase price is $2.55 million for the noncash assets and $2.6 million for the stock. Furthermore, assume that the transaction takes place in the current year. How would the acquiring corporation report each of the three alternatives under GAAP?

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Assets Adjusted Basis FMV Cash S 250,000 s 250,000 Accounts receivable 75,000 70,000 Inventories (LIFO) 600,000 1,750,000 Equipment 200,000 250,000 Building 30,000 285.000 Land 30,000 115.000 Total $1.185.000 S2,720,000